Imagine this scenario: You are the general counsel of a company in a particularly competitive industry. A key company employee who has access to some of the company’s most sensitive information has been working remotely for the last three weeks as a result of the COVID-19 crisis, and the employee exploits the opportunity to print or download confidential company information to a personal device, including customer lists and product specifications. The employee then gives notice and immediately begins employment with a direct competitor and begins soliciting your top customers. You consult with outside counsel who drafts a complaint and motion for preliminary injunctive relief and expedited discovery. But, as a result of COVID-19, you cannot obtain emergency relief, or the ability to do so is severely limited. What do you do?
While COVID-19-related court closings and filing limitations present a new obstacle to protecting trade secrets and customer goodwill, this crisis does not give wayward employees and unscrupulous competitors carte blanche to take and exploit your confidential information and customer goodwill. To the contrary, even without ready access to courts, there are many steps employers can, and should, take to protect their confidential information and customer goodwill, and to preserve their rights until the crisis passes. Indeed, many litigation tasks do not require in-person contact, or even court action, to commence or complete. These tasks should be documented along the way, in case a court later questions why you have not acted more quickly when faced with a threat to your trade secrets.
The Cease-and-Desist Letter
Under normal circumstances, one of the first steps for a business whose confidential information has been taken by an employee or a competitor is to send a cease-and-desist letter. A good cease-and-desist letter generally follows a familiar formula: it (i) identifies the wrongful conduct and legal rights being violated, (ii) demands that the employee immediately cease and desist all such offending conduct and comply with all contractual and legal restrictions, (iii) demands the return of all confidential information and trade secrets and preservation of all other relevant evidence, and (iv) reserves all rights, including the right to take further legal action.
During the COVID-19 crisis, some of these demands may be considered all bark and no bite because of the limited availability of emergency relief in court. To give additional teeth to a cease-and-desist letter, consider including specific statements to the effect of:
- The COVID-19 crisis is not an excuse to flout contractual, statutory, and common law duties, which the company will be seeking to enforce immediately, or as soon as practicable.
- If the courts are not presently available to issue emergency injunctive relief, or if such relief is delayed or does not fully remediate the harm caused by the employee, the company will pursue damage claims against the employee, and possibly his or her new employer, including punitive damages if circumstances warrant—and taking advantage of a national health emergency just might constitute the kind of morally culpable behavior that warrants punitive damages.
- The COVID-19 crisis is not interfering with the company’s ability to monitor the ex-employee’s activities, and it is continuing to do so vigilantly.
- Nor has the crisis prevented the company from conducting a forensic examination concerning the employee’s access to and appropriation of electronically stored confidential information (see below).
While such statements do not give the company any additional enforcement mechanisms during the crisis, they do provide a pointed reminder of the risks facing a would-be misappropriator, and make it clear that the company is taking the issue seriously notwithstanding the current crisis.
Forensic Imaging and Examinations
In most misappropriation cases, it is wise to conduct a forensic examination of the departing employee’s company-issued devices, email, and cloud accounts (this is good practice even when an employee leaves on good terms, and there is no reason to suspect misappropriation has occurred). A forensic examination does not have to wait for the COVID-19 crisis to pass, and companies should not wait for it to do so. Immediate steps should be taken to identify, retrieve, and image relevant devices, ideally with outside professionals who can later provide affidavits attesting to their retrieval, maintenance of custody, and examinations.
Monitoring the Employee’s Activities
Companies should also remain vigilant about monitoring the business activities of the former employee. Such efforts should include tracking customer and business relationships that the employee had responsibility for and/or access to confidential information about. For example, did a competitor suddenly low-ball bid the company on a proposal? Are key employees being poached? Has a competitor gained an otherwise inexplicable head start or advantage?
Consider Alternate Forums
Different courts are taking different approaches to the COVID-19 crisis. Some are closed to new case filings altogether. Some are accepting emergency matters only. Some are accepting new case filings, but are only currently considering emergency motions. Some have a more expansive view of emergencies than others. Companies should not feel bound to their “home courts” if those courts are not available to hear new matters, and there is a legitimate basis to go to another forum that is open for regular basis. Consider, for example, courts where the employee or new employer are located (including where the new employer is incorporated or maintains its principal place of business, both of which subject the new employer to general personal jurisdiction under Daimler AG v. Bauman, 571 U.S. 117 (2014)).
This is so even if the employee has an employment agreement that chooses a particular forum and that forum is not open for regular business. Vice Chancellor Laster of the Delaware Chancery Court recently held that a forum selection clause was unenforceable when the chosen forum was “unavailable” due to a COVID-19 closure. See Conduent Business Services, LLC v. Skyview Capital LLC, C.A. No. 2020-0232-JTL (Del. Ch. Mar. 30, 2020). We are not aware of any contrary rulings as of the date of this publication, although like most things these days, the law is being made on a daily basis. The same “unavailability” argument might also be used to defeat a motion to dismiss or transfer brought on forum non conveniens grounds.
Another possibility, when faced with a forum selection clause in an employment agreement, is to not sue the employee at all, and only name the new employer, if the new employer is amenable to suit in an open jurisdiction. While this approach has its limitations, a suit (or even just the threat of suit) against the new employer sometimes yields the result a company wants and protects its trade secrets.
Companies can also look to arbitration if available by contract or agreement between the parties. Most major private arbitration services remain open, including AAA, JAMS, and CPR, and they may be equipped to address matters on an expedited basis and with the benefit of remote technology. And arbitrators can issue injunctive relief just like courts. Indeed Rule 37 of the American Arbitration Association (AAA) Commercial Rules provides that “[t]he arbitrator may take whatever interim measures he or she deems necessary, including injunctive relief . . . .” Similarly, Rule 32 of the AAA Employment Rules provides that “[a]t the request of any party, the arbitrator may grant any remedy or relief that would have been available to the parties had the matter been heard in court . . . .” While enforcing that relief may require court intervention, a violation of an injunction, even if issued by an arbitrator, is more likely to be treated as an emergency by a court, and with an arbitrator acting as both judge and jury in the proceeding, he or she is more likely to take any such violations into account in a final award.
In addition, parties might seek mediation, which can be done remotely. Many mediation agencies, such as JAMS, are offering remote mediations. Like the court reporting agencies, they too are offering interesting new technology to make it more effective.
Stipulated Injunctions and Expedited Discovery
Sometimes, in trade secret and restrictive covenant litigation, the parties will agree to limited restrictions on the defendant (such as not to use or disclose confidential information, not to solicit certain customers, etc.) and ask the court to enter those restrictions as a stipulated preliminary injunction to avoid the time and expense of an evidentiary hearing. While the stipulated injunction is pending (or even if the parties cannot agree on one), the parties can agree to engage in limited expedited discovery (including written and depositions) while awaiting court authorization to conduct broader discovery.
An in-person evidentiary hearing likely will not be an option for at least several more weeks (perhaps longer while the courts get through backlogs), but with a stipulated injunction in place (even if not perfect), and limited expedited discovery, waiting until then to obtain longer term relief from the court may be palatable to the plaintiff and could help reduce the current burden on the courts. Although somewhat counterintuitive, and certainly not universal, defendants will sometimes agree to stipulated injunctions and/or expedited discovery if they believe they have meritorious defenses that will be borne out during discovery, or if they know they are dead to rights, so as to move the case to conclusion more quickly in an effort to avoid further business interruptions. There is no reason that the current COVID-19 crisis would change this calculation.
Even if you can’t get into court right away, be ready to go as soon as the court near you is back in regular session. You can be sure there are scores of litigators and litigants waiting at the door to get their cases filed and to appear before the next available judge. Be at the head of the pack. Have your investigations and forensic examinations complete and packaged for the court. Get your complaint and motion papers drafted, including any necessary supporting affidavits. Hit that button to e-file your documents as soon as the court gives the green light, or have a runner at the ready to file hard copies if need be. Apart from the obvious practical considerations, remember that a motion for injunctive relief can be defeated by a showing of unreasonable delay. A court might well question what you’ve been doing during the shutdown and why you did not move right away once the court doors were open again. Such questions can be easily avoided by having everything prepared before courts are officially back open, including documentation of your efforts to protect your trade secrets even while the courts were unavailable.